In Pursuit Of Global Deals…this poem kind of sums up the international business experience

Dealmakers’ Anthem!

Before the sunrise hits the roofs,
Before the birds begin to sing,
As drops of dew roll off the grass,
We hear the bells of global deals ring

Their energy provides the fuel
to drive the shipments cross the globe,
The email bits are cold and cruel,
They’re deals’ blood and players’ hope

The deals take us to strange places,
Exotic towns, abandoned mines,
Through deals we learn people’s faces,
And find the truth between the lines

The deals are like drugs and vices,
They make us high, and crashing lows they bring,
We chase them hard; we sometimes take bad chances,
and yet like junkies we pursue them and ignore their sting

                                                                                                         A. M. Gordin ( ©2011-2014 all rights reserved)

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Politics of Exports

Yesterday’s WSJ article titled“Exporters Fear Credit Crunch” (reprinted here in a previous post) once again highlighted the debate on Ex-Im’s reauthorization and listed the pro and con issues from both sides of the political isle. As half of my immediate family is involved in financing international trade, the topic of the Bank’s reauthorization is ever present around our dinner table. Yesterday, we once again raised the question of why would a respected member of the US Congress so blatantly oppose  a proven export finance tool, which contributes real money to the US Treasury and supports countless jobs?

The answer is – because he can and because Ex-Im is an easy target for partisan politics. Export Import Bank of The United States (US Ex-Im, Ex-im) is one of the smallest agencies of the US Government, but one which has disproportionately high visibility. Certainly restructuring half a floor at the Department of Commerce (which probably employes about the same number of folks as the entire Ex-Im Bank)  would not garner the Good Congressman from Texas the same publicity and power. By blocking the reauthorization, Congressman Hensarling and his allies are able to deliver effective blows to the Presidential Administration and to the Bank’s leadership. Yet the hardest blow their efforts deliver are to the US economy.

I generally believe in government minimizing its involvement in business regulation and personally try to stay out of politics.  Yet it is not always possible, as politics and business are often intertwined and business is negatively impacted by actions such as those of the Good Senator and his supporters.  My sympathies certainly do not lie with the current Administration, whose list of missteps, fumbles and incompetencies is quite long. I did applaud the President’s National Export Initiative until it sort of sputtered, along with subsequent reset attempts. Yet given the phenomenal importance of exports to our (or for that matter to any) economy, it is gross malpractice for any politician(elected, or otherwise) to undermine exports, reduce their economic effect and interfere with the lives of real people who make those exports happen.

Let’s put some things in perspective. USA exports roughly $2.3 Trillion of goods and services annually. Of that amount, US Ex-Im Bank finances about $25 Billion annually, only slightly more than one percent of the total. Seemingly doing away with the Bank will not be a huge loss to the American economy.  Since some of the exporters dropped by Ex-Im would find financing in the private sector, net-net US will probably lose less than one percent of its exports. Not a big deal? Consider that just slightly under $5 billion of the exports financed by the US Ex-Im are financing small businesses just like companies mentioned in the WSJ article. Those companies represent tens of thousands of jobs, which would be lost, or not gained if Ex-Im were to close.

They call Ex-Im “the Bank of Boeing”.  TRUE.  That company is the biggest recipient of Ex-Im financing, but how many small businesses in its supply chain benefit from the aircrafts sold on the world markets, how many jobs are created in post sales service and support – hundreds of thousands. Politically, US image benefits when Boeing Airplanes and other American brands are seen around the world. Ex-Im is a large contributor to that global image building process.  If we close Ex-Im, European credit agencies financing Airbus planes will get an advantage and more Airbus planes will be sold in the world giving a financial and political edge to our European allies. “Better than going to China or Russia” some may say, but “better” is not enough to put food on the dinner table for a family of four in South Carolina, whose breadwinner has been laid off due to loss of international orders.

My experience working with Ex-Im Bank goes back over a decade, I have seen a lot of things at this Agency, which could use improvement and even structural change. Yet in the realm of Federal Government Agencies, Ex-Im is pound for pound among the most effective. Its 400 employees returned over $600 million into the US treasury, That is over $ 1.5 million PER employee, and is equivalent to productivity of many solidly performing companies of the private sector, and that is in the world where deficit, consumption and spending rule. Yet, Congressman Hensarling wants to close this small and profitable Agency down, WHY?  As part of reauthorization compromise, some in Congress want to saddle Ex-Im with new reserve requirements to cushion possible future defaults. Yet, high default rates have not been a problem at Ex-Im, whose rate of default is comparable with that of large commercial lenders taking similar risk. If anything, the bank has been too conservative in its underwriting. Problem with personnel turnover, yes, problem with defaults, not at all. I could and will make a case that because of the uncertainty in reauthorization Ex-Im has lost some of its best people over the last year. More senior people with decades of experience left in the last 12 months than in the previous five years combined.

It is ironic that the labor unions – one of the groups that benefited greatly from Ex-Im’s financing have also been behind the effort to dismantle Ex-Im. When Delta Airlines, bloated with uncompetitive and overpriced labor force, tried to block foreign sales of US made airplanes financed by Ex-Im, the Airline resorted to using political pressure to try and wreck export financing and destroy jobs of people at companies that could compete and deliver economic gain to the US. The absurdity of the situation cannot be understated. It is another example of politics undermining exports.

Of course, there are certainly positive effects of politics on exports. Chief among them are various trade partnerships and free trade agreements. When they work, these agreements are magical and provide fantastic economic benefits to US producers and exporters. Yet those agreements take years to negotiate and ratify, causing lost revenue and loss of competitive position in many markets where other countries outmaneuver US and pass their own agreements quicker. Thus rather than destroying a good and solidly performing Export Credit Agency, which benefits many thousands of people throughout the US, Congressman Hensarling and his colleagues should focus on making sure PTTs are negotiated and ratified faster, so US can produce and export more.

Exporters Fear Credit Crunch

Ex-Im Bank’s Future Is Concern as Congress Allows Temporary Reprieve

Jennifer and Mark Dettman of Shank’s Veterinary Equipment, which relies on Export-Import Bank credit. DANIEL ACKER

By MICHAEL R. CRITTENDEN and ADAM JANOFSKY, WSJ.com

A decision by Congress to extend the Export-Import Bank only temporarily is raising concern among business owners who say they rely on the credit agency to lower the risks of exporting.

Congress extended the agency’s charter through the middle of next year as part of a compromise between supporters of the agency and those who want to eliminate it. Generally, lawmakers reauthorize the export-credit agency for multiple years at a time.

At Shank’s Veterinary Equipment Inc. in Milledgeville, Ill., Jennifer Dettman, the secretary and treasurer, said she relies on the Export-Import Bank to offer open credit for 60 days. Exports comprise about 30% of the company’s over $900,000 in yearly sales.

Shank’s, which has seven employees, manufactures surgery tables for large animals, and sells its equipment to universities, zoos and private clinics in countries such as Mexico and India. It started using the bank’s credit-insurance policy in 2011.

EN

A welder works on a large tabletop at Shank’s Veterinary Equipment in Milledgeville, Ill. DANIEL ACKER

When a customer orders a Shank’s table, typically priced at $20,000 to $30,000, the business spends roughly two months manufacturing it. The Ex-Im Bank will insure the order for a fee equal to 0.5% of the shipment value—a fee that Shank’s generally passes on to its customers. If the customer defaults, then after 90 days Shank’s can submit a claim to the bank, which covers 95% of Shank’s loss.

“It minimizes the risk for us,” said Ms. Dettman, describing it as “pretty good coverage.”

She concedes there may be similar insurance coverage available in the private marketplace, but isn’t sure whether those policies will cost more. “I would have to start all over again,” she added.

Similar conversations are happening at other businesses. Ralph Imholte, the president and CEO of Bepex International LLC in Minneapolis, said the bank’s working-capital guarantee program has helped expand his company’s exports to more than 50% of the company’s $25 million in annual sales. Mr. Imholte said he is “very worried” about the bank’s future, because “without that guarantee, it would limit the size of the projects we could undertake and limit our growth potential.” Bepex provides equipment and assistance to food and chemical businesses.

“Many small businesses and many jobs are dependent on the bank’s programs. It’s an area that needs less political fighting and more policy discussion,” Mr. Imholte said.

Those concerns haven’t swayed House Financial Services Chairman Jeb Hensarling (R., Texas), who has led the charge to close the Ex-Im Bank. Congress creates uncertainty any time it considers changing the law, he said, and there are more substantive things lawmakers could do to help businesses.

“The best way to help our small businesses and exporters right now would be through a fairer tax code, relief from Washington’s regulatory red-tape burden and lower energy costs—not political favoritism placed on an unsustainable taxpayer balance sheet,” Mr. Hensarling said.

The push from some conservative Republicans to close the bank is part of a broader political debate about the role that government should play in the economy. Critics say the agency represents a form of corporate welfare that interferes with private markets. They also question its role in helping small businesses, arguing that major firms such asBoeing Co. and General Electric Co. receive a significant amount of its financing. Only 19% of the agency’s direct support to firms in the 2013 fiscal year, measured by dollar volume, went to small businesses, for instance.

Supporters note that major U.S. trading partners similarly seek to aid their exporters, and contend that the agency fills a need not met by private insurers and banks. They also point out that the agency helps reduce the federal government’s deficit. The agency said earlier this month it had sent $675 million to the Treasury Department in fiscal 2014. The extension passed by Congress lasts through June 30.

For now, supporters are pushing for a longer-term reauthorization. Two key members of the House Financial Services Committee last week unveiled bipartisan legislation that would extend the bank’s charter for five years while bolstering risk and fraud protections. The measure, from Reps. Maxine Waters (D., Calif.) and Gary Miller (R., Calif.), would, among other things, require the bank to allocate 50% of its net earnings each year to create a reserve fund to cover potential losses.

Congress needs to provide more certainty to firms, said Mr. Miller. “It is in our national interest to help American companies secure sales around the world by making sure they aren’t undercut by aggressive foreign-export credit agencies,” he said.

Mr. Hensarling quickly dismissed the measure, saying “I look forward to the bank’s expiration.”

Small businesses, meanwhile, don’t know if they can rely on the bank for assistance over the long term.

Mrs. Dettman, who said she consults local export-assistance programs for guidance, also is unsure whether a regular bank would be willing to work with Shank’s, which makes just a dozen or so foreign shipments a year.

“We’re really limited in terms of who will work with us,” she said.

Write to Michael Crittenden at Michael.Crittenden@wsj.com and Adam Janofsky atAdam. Janofsky@wsj.com